Real Estate and Business Agents Act, s 64(2)

Downward v Babington [1975] VicRp 85; [1975] VR 872

England v Inglis [1920] 2 KB 636

Szigligeti v Mendex Pty Ltd (1996) 15 SR(WA) 237

1 MILLER J: The appellant was charged in the Court of Petty Sessions at Perth on one complaint which joined 16 separate charges alleging offences against various provisions of the Real Estate and Business Agents Act 1978 ("the Act"). Relevantly, he faced three charges alleging offences against the provisions of s 64(2) of the Act, they being charges 8, 12 and 15 of the 16. Each of these three was in similar terms, the only difference between them being the names of the agent's principal, the dates and the details of the property. Charge 15 was in these terms:

"Between 3 July 1996 and 18 July 1996 at Perth Charles Patrick O'Leary, being in the employment of an agent, namely Joan Jacobs trading as Realty Executives, Jacobs & Associates had an interest, not being an interest which existed by virtue only of his employment, in a transaction in which that agent acted, or purported to act, namely the sale of a property at 15 Crystaluna Drive, Golden Bay without the prior written consent of the agent's principal, namely Mr Peter Smith and Mrs Anne Smith; contrary to Section 64(2) of the Real Estate and Business Agents Act 1978."

2 The appellant pleaded not guilty to charges 8, 12 and 15, but after a two-day hearing he was convicted by the learned Magistrate. A fine of $250 was imposed in relation to each charge with an order for $500 costs.

3 On 28 July 2000 Templeman J granted the appellant leave to appeal the three convictions. The grounds of appeal which were then formulated were amended by leave at the hearing of the appeal to read as follows:

"1. The learned magistrate erred in law in finding that in each of the transactions the subject of the complaints:

1.1 the appellant had an interest in the transaction in which the agent acted within the meaning of section 64(2) of the Real Estate and Business Agents Act 1978; and

1.2 the arrangement pursuant to which the applicant obtained a benefit was a 'transaction in which the agent acted' within the meaning of s64(2) of the Real Estate and Business Agents Act 1978.

2.1 The learned Magistrate erred in law in finding that there was no prior written consent as required by section 64(2) of the Real Estate and Business Agents Act 1978 with respect to each of the transactions the subject of the complaints."

Detailed particulars, which it is unnecessary to reproduce, were given in relation to this ground.

4 The facts before the learned Magistrate were not really in dispute. They established that the appellant was a property consultant who had a service contract with a firm of real estate agents named Realty Executives Jacobs & Associates ("Realty"). The appellant was at the same time a director, secretary and shareholder of Sure Sale Systems (Australasia) Pty Ltd ("Sure Sale"), a company which he had established for the purpose of operating in the field of real estate. It operated in conjunction with Realty, acting as a guarantor in relation to real estate sales.

5 The essential features of the scheme devised by the appellant were as follows:

(a) A vendor was approached by Realty which was a licensed real estate agent. If the vendor appointed Realty to act on his behalf in relation to a real estate transaction, Sure Sale offered to guarantee that the vendor would receive not less than the market value of his property.

(b) That market value was determined by licensed valuers independently of the appellant and Realty.

(c) In the event that the vendor's property was sold at a price less than the market value, Sure Sale agreed as guarantor to pay the difference between the actual sale price and the market value.

(d) The vendor agreed to pay to Sure Sale a fee which was termed a "contribution". This contribution was to be applied by Sure Sale in relation to a number of specified outgoings and expenses including a selling fee negotiated between Sure Sale and the agent and Sure Sale's "guarantee fee".

6 There was a standard form contract known as "the Sure Sale contract" made between the vendor, Realty ("the agent") and Sure Sale ("the guarantor"). The recitals to the contract set out that the vendor had appointed the agent to sell the property; the vendor wishes the property to be included in the Sure Sale system; the guarantor warranted that the vendor would receive not less than the market value for the property and the parties had agreed that market value. Pursuant to cl 2 of the contract the vendor engaged the agent to offer the property for sale by auction under the Sure Sale system and authorised the agent to engage the services on auctioneer acceptable to the agent. The vendor undertook not to disclose the market value to any other parties. Pursuant to cl 3 the vendor undertook to pay the contribution to the guarantor which the guarantor would apply towards payment of or in reimbursement of the following:

"(a) the cost of advertising and promoting the Property for sale;

(b) expenses incurred by the Agent including auctioneers fees and travelling expenses;

(c) a selling fee negotiated between the Agent and the Guarantor;

(d) guarantee fees or other expenses incurred by the Guarantor in respect of the Sure Sale System.

The balance of the Contribution remaining shall be retained by the Guarantor."

7 Clause 4 of the agreement provided that if the vendor entered into a contract for the sale of the property prior to the auction, the balance of the contribution then outstanding would become due and payable to the guarantor and the guarantor would have no obligation to refund any of the contribution that had been paid. There was a specific provision contained within cl 6 that no agents commission was payable by the vendor to the agent and a selling fee would be paid by the guarantor to the agent as agreed between them.

8 The essence of the agreement was cl 7 which was in the following terms:

"7.1 If the Property is sold at auction at a price less than the Market Value and provided that the Vendor is ready willing and able to effect settlement then the Guarantor shall at the Settlement Date pay to the Vendor a sum equal to the difference between the Market Value and the sale price.

7.2 If the Property is not sold at auction the Guarantor undertakes to produce a purchaser who is ready willing and able to purchase the Property on the same terms as the Property was offered for sale at auction. If the purchase price offered is less than Market Value and provided that the Vendor is ready willing and able to effect settlement then the Guarantor will at the Settlement Date pay to the Vendor a sum equal to the difference between the Market Value and the purchase price offered."

9 The schedule to the Sure Sale contract contained the signatures of all parties and certain other relevant information. In relation to the subject matter of charge 15, it was in the terms outlined in Annexure "A". In this case it was the appellant who signed on behalf of the guarantor.

10 The learned Magistrate concluded that the appellant was guilty of an offence against s 64(2) of the Act because he had an interest (other than an interest that existed by virtue only of his employment) in all three of the transactions which were under consideration. His Worship considered that the word "interest" needed to be interpreted broadly; that it may or may not be pecuniary; was certainly a material interest in the sense of there being some potential benefit or advantage of an appreciable nature and in this case, was direct or at least indirect in each of the three transactions. His Worship concluded that the interest arose by virtue of the appellant "being in effect the mind of the company Sure Sales ... he was the sole director, the secretary and the sole shareholder and there is no evidence of any other person having any other involvement in the company at all". His Worship concluded:

"I draw the inference that it was a company solely and exclusively controlled by him and that any benefits which flowed to the company would thereby flow to him as a shareholder and I also infer that as the sole director and, in effect, the mind of the company, he had the power to control all of the assets of the company in whatever way he thought fit. There is no potential for any conflict of interest arising out of the way in which he conducted the affairs of the company. No other person or entity was involved in the company.

The interest, in my view, that he held in that manner, or that he had --- and 'have' is the word used in the legislation --- was an interest, in my view, which derived from the Sure Sales Contract Agreement in each case and that was an interest which arose out of the outcome of the undertakings which Sure Sales entered into with each of the vendors in each case and the undertaking was to sell the property by auction or by private treaty."

11 The learned Magistrate also considered the question whether there had been any prior written consent for the purposes of s 64(2) and concluded that there was no prior written consent in any of the three transactions under consideration, saying:

"I don't think it could be said that it would be apparent that simply because he was offering a guarantee at a certain price, that there was an interest of a type which could be said to be catered for in terms of a written consent being given to it which could arise out of the mere signing of the document as was the case in the decision of O'Kenny.

In my view, there was not a prior written consent for the purposes of section 64(2). In short, the objective of a written consent, in my view, is to avoid uncertainty and it's obvious from what I have said that it's my view that knowledge or belief of an interest of some sort is not necessarily a knowledge or belief of an interest which could be said to be or potentially be a conflict of interest of the type at which section 64(2) is aimed."

12 The provisions of s 64(2) of the Act should be considered in the context of the section as a whole. Section 64(1) and s 64(2) are in the following terms:

"(1) An agent shall not have, directly or indirectly, any interest, otherwise than in his capacity as an agent, in any transaction in which he acts or purports to act as agent, unless his principal has given prior written consent thereto.

Penalty: $5000 or imprisonment for 6 months.

(2) A sales representative or other person in the employment of an agent shall not have, directly or indirectly, any interest, other than an interest that exists by virtue only of his employment, in any transaction in which the agent acts or purports to act unless the agent's principal has given prior written consent thereto.

Penalty: $5000 or imprisonment for 6 months."

13 Section 64(2) applied to the appellant because he was a person in the employment of on agent. The question was whether he had directly or indirectly any interest (other than interest that existed by virtue only of his employment) in any transaction in which the agent acted. The subsidiary question was whether if he did have such interest the agent's principal had given prior written consent to the appellant having that interest in a transaction in which the agent was acting.

14 There are two important definitions in the Act. They are the definitions of "transaction" and "real estate transaction". They are (relevantly) as follows:

" 'transaction' means a real estate transaction or a business transaction, or both a real estate transaction and a business transaction;"

'real estate transaction' -

(a) means a sale, exchange, or other disposal and a purchase, exchange, or other acquisition of real estate and any exclusive right whether deriving from the ownership of a share or interest in a body corporate or partnership, or otherwise, to the use or occupation of real estate including the leasing, and letting, and the acquisition under lease or letting of tenancy or occupation of real estate;"

15 Central to the appellant's argument is that the learned Magistrate failed to identify clearly the interest the appellant held in the "transaction" alleged. Indeed, his Worship made only passing reference to the word "transaction on two occasions during the course of a long judgment. He did so by reference to the definitions contained within the Act, but without more. What the appellant argues is that the arrangement between the vendor and the agent in this case was the sale of the relevant property by auction or if not by auction, by private treaty. In relation to these prospective sales there was a separate agency agreement entered into between each of the vendors and Realty. This being so (it was argued) there was no evidence that the appellant derived any benefit from this separate agency agreement as at no time was Sure Sale to actually purchase the property or do anything more than act as guarantor. The guarantee obligation was (it was argued) entirely discrete.

16 I accept the submission of the appellant that the provisions of s 64(1) and s 64(2) are primarily directed at the situation in which an agent or an agent's employee has a direct or indirect interest in either a sale or a purchase of real estate. Although the definition of "real estate transaction" is said to mean a sale and a purchase, clearly the definition is intended to be disjunctive. In the present case the question is whether the appellant had as employee of the agent a direct or indirect interest in the sales in question. Counsel for the respondent made reference to a number of cases in which the word "interest" has been given a broad definition. However, none of these cases was concerned with the provisions of the Act, and the diversity of use of the word "interest" is illustrated by the reference made by counsel for the respondent to the celebrated case of R v Bow Street Magistrate; Ex parte Pinochet [1999] UKHL 1; [1999] 2 WLR 272 where (at 282 - 283, 286) Lord Goff of Chieveley made it clear that the principle that a man should not be a judge in his own cause (nemo judex in sua causa) was not confined to a cause in which a Judge was a party but applied also to a cause in which he had an "interest". That "interest" can extend beyond merely pecuniary and proprietary interests. Other cases cited which deal with the meaning of "interest" in different contexts are of little assistance.

17 I have no doubt that s 64 was directed at the mischief of real estate agents, sales representatives and/or employees of agents acting in relation to the sale or purchase of real estate in circumstances where they had failed to disclose to the principal the fact that they had an interest (usually pecuniary) in the outcome of the sale or purchase, being an interest separate and distinct to that of merely receiving a commission for the work done. An example of this mischief would be where an agent acts in the sale of a property to somebody closely associated with him and without revealing that fact. This is the classic "conflict of interest", which is the description given to s 64 of the Act in the sidenote.

18 I accept the argument of the appellant that the Sure Sale contract was primarily a guarantee. Sure Sale collected a fee as part of the "contribution" by reason of acting as guarantor. It stood to benefit by reason of receipt of portion of the contribution, but that portion of the contribution was paid to it in its capacity as guarantor. I accept the submission that the interest which Sure Sale had was an interest in respect of the guarantee arrangement and not in respect of the real estate transaction as that term is defined in the Act. In my opinion the Sure Sale contract clearly differentiated the roles of the agent on the one hand and the guarantor on the other. The appellant was a person in the employment of an agent, but did not, in my view, either directly or indirectly have any interest (other than that which existed by virtue only of his employment) in any transaction in which the agent was acting. That is to say, the appellant did not have an interest in the sale of real estate in any one of the three instances in question. The interest he had was through Sure Sales' entitlement to a fee for acting as guarantor under the Sure Sale contract. The distinction was clearly made in the contract itself.

19 For these reasons I am of the view that the learned Magistrate erred in concluding that the appellant had an interest in the three transactions in relation to which he was charged. It follows that it is unnecessary for me to consider the second ground of appeal, but I should say that even if I had found it necessary to consider this ground I would have upheld it.

20 The learned Magistrate's conclusion that there was no "prior written consent" to the appellant's interest in the transaction in which the agent was acting was, in my view, erroneous. The reason for the learned Magistrate's conclusion that there was no prior written consent was that the objective of such a written consent was to avoid uncertainty. In his Worship's view, it was obvious that "knowledge or belief of an interest of some sort" was not necessarily a knowledge or belief of an interest which could be said to be or potentially to be a conflict of interest of the type at which s 64(2) was aimed. His Worship was not prepared to accept that the signatures of the vendors on the schedules to the Sure Sale contract "translated into a written consent by way of implication from the signing or inference from the signing of the contract".

21 However, when one looks at the Sure Sale contract to which I have made reference (and in particular to the schedule which I have reproduced) it is apparent to me that the vendor's signatures on that schedule amounted to written consent to the interest of the appellant. The words "prior written consent" should, in my view, be interpreted as meaning that a vendor must in these circumstances have given written consent prior to the sale or the purchase of real estate and not after that sale or purchase has been effected. Thus, it would be no defence to a salesman or employee of an agent to say that after a sale had been effected, the vendor upon being told of the interest which the salesman or employee had in the transaction, thereupon gave a written consent to the salesman or employee having such interest. Here, the vendors on the day upon which they signed the Sure Sale contract clearly understood whatever interest it was that the appellant had in the transaction. The appellant signed "on behalf of the guarantor" and clearly represented the guarantor. It is not to the point that the appellant failed to disclose his directorship or shareholding in Sure Sale. What he did disclose was that he was acting on behalf of Sure Sale and in my view the vendors, by their signatures contained within the schedule to the Sure Sale contract, clearly consented prior to any transaction (as that word is defined in the Act) to the appellant acting in the capacity in which he did and holding whatever interest it was that he held.

22 There is authority that "prior written consent" for the purposes of the section does not necessitate a separate document setting forth in precise terms the relevant conflicting interest: Duncan-Cooper Nominees Pty Ltd v Langley Investments Pty Ltd, unreported; SCt of WA; Library No 950357; 26 July 1995 O'Kenny v The Real Estate and Business Agents Supervisory Board (1996) 17 SR(WA) 6. Each of these cases was concerned with a different factual scenario, but in the first of them the "prior written consent" was found in the exclusive authority given by an agent and in the latter the "prior written consent" was constituted by acceptance of an offer to purchase.

23 It would, in my view, be unrealistic to expect that in relation to the Sure Sale contract under review in this case, there needed to be a separate and distinct form of written consent executed by the vendors and the appellant prior to the execution of the contract itself. The contractual document contained in my view all of the necessary written consents (should they be required) and clearly prior to any real estate transaction as that term is defined in the Act. However, as I have indicated it is really unnecessary for me to reach a conclusion on this ground of appeal, as I am satisfied that the first ground of appeal is made out.

24 For these reasons I would allow the appeal and quash the convictions of the appellant on charges 8, 12 and 15 of the 16 charges which he faced in the Court of Petty Sessions at Perth on 26 June 2000. As these were "representative" charges, and charges 9, 10, 11, 13, 14 and 16 depended upon the outcome of them, it follows that these charges should also be quashed.